One year variable mortgage is the hottest product now

Many of us recall the glory days of variable mortgage rates - prime less 0.95 or even prime less 1.1%. As such, many clients who now want a variable mortgage are reluctant to commit to a five year term today - in case the discount improves soon.

Street Capital recently came out with a one year ARM (adjustable rate mortgage) at a kick-ass rate of prime less 0.25%.

So for those of you waiting for deeper discounts, now you can have your cake and eat it too !

Essentially it's a free call on the market for a year.

Canadian real estate market on fire

A tale of two real estate markets

In Canada, damn our winters, it’s always been tough to sell a home this time of year.

Not listing your house in the winter has even turned into a real estate rule of thumb. Traditionally, the market just dries up.

So you can imagine the surprise of many realtors today when news broke that Canada had its best-ever December for home sales. Best. Ever.



“Sales activity in 2009 came in like a lamb and went out like a lion,” Canadian Real Estate Association (CREA) president Dale Ripplinger told the Star.

According to the CREA’s numbers, 27,744 existing homes were sold last month, up 72 per cent from December of 2008.

Not only was the average sale price up for December ($337,410, an increase of 19 per cent) versus last year’s stats, but for the whole year as well ($320,333, an increase of 7.7 per cent from ‘08).

So, what’s all this about?

For starters, economists warn the emerging market is “getting dangerously close to bubble territory,” according to the Star.

“Cooler heads recognize that many of the recent gains reflect temporary factors that could fade by summer,” said CREA Chief Economist Gregory Klump.

Still, though, listings in December were up 4.8 per cent from 2008 – the first year-over-year gain in 2009 – and the response from Canadian home buyers is tough to dispute.

This data is interesting, of course, because things aren’t quite the same south of the border.

While Canada’s real estate market shows signs of strength in the winter months, all accounts point to the opposite in the U.S.

The country’s Pending Home Sales Index plummeted 16 per cent in November, at least – a sign surely pointing to a further drop in December.

Check out the visually dramatic dip here.

By Jason Buckland, MSN Money

Posted at 05:29 PM | Permalink

Be pessimistic to live optimistically

I read this interview of Gail Vaz-Oxlade in today's Saturday Star - and it really resonated with me. Her mantra is simple yet practical advice for all. The part I liked best was when Gail says you should NOT pay off all your debts before you begin to save.

So with thanks to the Star and Nancy J. White for the reprint of the original interview, here it is.

'Plan like a pessimist (to) live like an optimist'

January 16, 2010 

Nancy J. White 

Will you be able to manage financially when the caca hits the fan? 

That's the concern of Canada's blunt-talking personal finance writer, Gail Vaz-Oxlade. She's the host of the television show Til Debt Do Us Part on Slice and author of a new book, Debt-Free Forever: Take Control of Your Money and Your Life. 

 Vaz-Oxlade, 50, the mother of two teenagers, lives in Brighton. She spoke to the Star about priority shopping, the long-term pain of credit and the lure of pretty sandals. 

Q: Have you ever been in, as you call it, "Debt Hell"? 

 A: No, never. Debt is an anathema to me. It's impossible for me to imagine spending money I haven't yet earned because I'm always aware caca can happen. It's important that I keep my financial life stable so I can deal with s--- when it hits the fan. 

Q: Bit of a pessimist are you?  

 A: I'm actually incredibly optimistic. My mantra is, "Plan like a pessimist so you can live like an optimist." 

Q: How did you get to be a money maven?  

 A: I fell into it. I started as an educational consultant for the financial services sector, went into freelance writing, book publishing and then television. 

I'm self-educated on money. So I am living proof that all you have to be is interested and committed to be able to know what the hell is going on. 

Q: What's the most common debt sinkhole people fall into? 

 A: The most problematic one is consumer debt – credit cards, lines of credit, buy-now-pay-later, all the stuff related to "I want it, I buy it." Adding to that is heaps of people buying more home than they can afford. A small change in their circumstances leaves them turning to other forms of credit to make ends meet. 

Q: Credit cards: The minimum payment is tempting for ...? 

 A: Oh God. What happens is that you make your lender really, really rich. You go out to dinner and spend $100 and put it on your credit card. It was a great evening. You go home. You poop. Dinner's gone. The balance stays on your credit card for the next 10 years because you're just paying the minimum. That's immediate gratification with big-time, long-term pain. 

Q: How many credit cards do you use? 

 A: I have two: a MasterCard I put everything personal on and a Visa for everything business. Both are paid in full the minute they are due. 

Q: Should a person pay off debts before starting to save? 

 A: No. I'm one of the few people to say that. Savings is a habit. If you don't establish the habit, you never will. There's always a reason not to save, so you need to establish the habit. 

Q: You say, "Don't make shopping emotional." Don't you ever shop to make yourself feel better? 

 A: No, never. I shop because I need or want something. It goes on my list that I carry in my head. I say to myself, "I need a set of bed sheets." I prioritize. Nothing I need or want is more important than the sheets. If I see sheets I like that are more expensive than I expected, I think, "What else am I willing to give up to have that?" 

I live in a nice home. There's nothing around my home I don't want. People have clothes hanging in the closet with the tags still on. The stuff I have I use and enjoy. I invested in a pair of shoes to look at because they're so pretty. 

 Q: You bought shoes just to look at? 

 A: People buy tchotchkes. I wanted to look at these shoes. They make me happy. They're very strappy green sandals with a small heel and a big green daisy on the front. I've worn them maybe three times, but I bought them to look at. 

Q: How much? 

 A: $39.99. 

Q: Yeah, yeah. $39.99.  

 A: [Laughter] Sorry. 

Q: Gail, what's your most recent splurge? 

 A: Audible.com just had a sale. I listen to a lot of books because of all the driving I do and my eyes aren't what they used to be. I saw the sale and bought myself 22 books. That's my big treat. 

Q: Dumbest money mistake you ever made? 

 A: Marrying my first husband. 

Bank of Canada takes stance on housing bubble

Bank of Canada takes stance on housing bubble

Tuesday, 12 January 2010

A Bank of Canada official called talks of a Canadian housing bubble premature in a speech in Edmonton Monday, adding higher interest rates are not the solution to cooling the current surge in housing demand and prices. "If the bank were to raise interest rates to cool the housing market now - when inflation is expected to remain below target for the next year and a half - we would, in essence, be dousing the entire Canadian economy with cold water, just as it emerges from recession," said David Wolf, an advisor to Bank of Canada governor Mark Carney. "As a result, it would take longer for economic growth to return to potential and for inflation to get back to target." The central bank's comments came on the heels of the CMHC's latest report on housing starts, which showed a 6.6 per cent jump in urban starts across Canada compared to November. They also follow federal finance minister Jim Flaherty's recent comments about introducing new rules to cool the housing market. In his speech, Wolf said housing bubbles are usually caused by credit expansion as opposed to temporary factors like low interest rates and pent-up demand, and these factors cannot continue to sustain the high numbers of sales and prices seen in Canada over the past few months. Wolf also said the central bank is monitoring the housing market closely, adding it required "vigilance, not alarm."

More interest rate worries from Ottawa

The end of free money: Investors had better get used to the idea of rising rates Paul Vieira, Financial Post Published: Friday, January 08, 2010 Mark Blinch/Reuters

Mark Carney, the governor of the Bank of Canada, would dearly like to avoid raising rates before his U.S. counterpart for fear of further appreciation in the Canadian dollar. OTTAWA -- As usual, equity markets were ahead of the curve in terms of signalling an economic recovery. Of course, it didn't hurt that investors could tap money, virtually for free, due to historically low interest rates. The unprecedented run in markets has boosted confidence among households, and helped solidify the economy's shaky foundations.

But the improving economic outlook undoubtedly applies increasing pressure on the U.S. Federal Reserve and Bank of Canada to hike interest rates from record-low levels. Are traders and investors ready for the end of nearly free money? Thursday's surprise move by China to raise rates on short-term treasury bills shows just how touchy the subject will be for the year ahead. The move had the immediate effect of cooling down red-hot stock markets in emerging countries.

 "Markets are more comfortable that a recovery is here," says Mark Chandler, fixed-income strategist at RBC Capital Markets. "The next thing now, then, is how are we going to normalize rates. We are at emergency levels, but we are no longer in an emergency situation. So it's a question now of timing and magnitude." At present, federal fund futures - which provides a gauge of market expectations for U.S. Federal Reserve interest rates - are pricing in a policy rate of 0.90% by the end of 2010, up from its current target range of 0% to 0.25%.

That means markets are expecting roughly 75 basis points to nearly a full percentage point in interest rate hikes. A similar instrument in Canada pegs the Bank of Canada's overnight rate to rise 100 basis points, to 1.25%, in the same timeframe. Mr. Chandler adds the biggest debate in financial markets is the size of the first rate hike, from either the Fed or the Bank of Canada. "When there's all these messy [liquidity] programs out there, and [the central bank] is not really moving for pure inflation reasons, then we are not sure the normal guideposts hold. So it will be a top-of-mind issue for financial markets."

Views on the timing and magnitude of rate hikes are all over the map. Complicating matters is the recession just passed was like no other, prompted by the near collapse of the Western world's financial sector. Central banks might err in keeping rates too low for too long to stoke private-sector demand.

Meanwhile, in Canada, Mark Carney, the governor of the Bank of Canada, would dearly like to avoid raising rates before his U.S. counterpart for fear of further appreciation in the Canadian dollar. Still, investors had better get used to the idea of rising rates, just as they should understand that the great global stock market rebound - with the Toronto index up roughly 56% from lows last March - can't carry on forever. As a starting point, findings from a CIBC World Markets analysis suggest every 100-basis-point increase in the central bank's overnight rate knocks stock valuations down by roughly 5%.

 "Now is not the time for Canadians to become complacent," says Andrew Pyle, wealth advisor and markets commentator at ScotiaMcLeod. "If we are entering a different phase where rates are heading higher, which I believe, then that means we are not going to see a repeat of last year's rally."

Prior to this recession, the prevailing wisdom was that central banks commence policy tightening roughly six months after the unemployment rate peaks. Recent job data in Canada indicate the labour market has indeed stabilized, and there are signs of a turnaround in the United States - even though payroll data for December, released yesterday, fell short of market expectations. Economists at BMO Capital Markets said in a recent note they expect U.S. unemployment to peak this quarter, and have tentatively penciled in a rate hike from the Fed in September.

As for Canada, they forecast the Bank of Canada to begin tightening in July, once its conditional pledge to keep rates at 0.25% ends. Others differ. Perhaps the most controversial call of all comes from analysts at Goldman Sachs, who believe the Fed will not raise interest rates for two years.

David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, said the first few rate hikes following an easing period generally have little impact on the immediate direction of equity markets. The bigger impact comes during the final rate hikes in a tightening stage because they tend, more often than not, to push an economy into a tailspin. Perhaps the most stunning example was in 1937-38, when Fed moves to withdraw stimulus pushed the U.S. economy back into a deep tailspin and sent markets reeling. There's little concern Ben Bernanke, the U.S. Fed chairman who is a student of the Great Depression, would allow history to repeat itself and tighten too soon. The same goes for Mr. Carney.

Peter Buchanan, senior economist at CIBC World Markets, believes central-bank tightening will not begin until into 2011. Regardless of when the tightening starts, he says the initial impact should be negligible for publicly-traded Canadian companies. "We are starting from fairly low rates at this point in time, but one thing to bear in mind is that Canadian corporate balance sheets are in good shape. Debt-to-equity levels are quite low and that means if rates go up, that won't be a lot of stress on companies from a financial standpoint," Mr. Buchanan says.

In a report he recently co-authored, he indicated there's little risk that dividend-paying companies - which tend to be highly exposed to interest-rate movements - would scale back dividend payments in the event of tightening. "If anything, this past recession saw a milder rise in the TSX payout ratio than what we've seen in past economic downturns," the report says. It adds firms are paying out only 40% of consensus 2010 operating earnings in dividends - a smaller amount compared to the previous downturns in the early 1990s and 2000s. That provides some assurance that dividend-paying issuers won't be caught in a trap once borrowing costs rise.

David Baskin, president of Baskin Financial Services in Toronto, says dividend-paying stocks, including REITs, still "have some catch up to do," as they have yet to advance at the same pace as other asset classes during the recent rally. The TSX composite index has climbed 56% from its low last March. In comparison, the exchange's utilities and telecom subindexes have risen roughly 26% and 15%, respectively, during the same time period. "As more and more clients come up out from their nuclear bomb shelters, they see that GICs and Canada Savings Bonds look unattractive - while old-fashioned utilities look good," Mr. Baskin says.

As for asset classes to avoid in an era of pending rate hikes, money managers and advisors appear universal in their dislike of longer-term fixed income. "I would be very, very hesitant to hold long-term fixed income products in this market. We would find that very scary," said Michael Sprung, president of Sprung & Co. Investment Counsel in Toronto. "The fear is that when interest rates rise, the prices for long-fixed instruments will fall precipitously." Mr. Sprung, who believes there's a risk of a double-dip recession, said once interest rates begin to rise, "people are going to start to worry about the stamina of this recovery. And that could cause commodity prices to come off a little bit, which would be reflected in the TSX."

Still, there are those, such as Mr. Pyle, who indicate market participants are prepared for central bank tightening - and would welcome the development. "They are ready to engage that question now, and some market participants would be ready if it meant protecting against even higher interest rates down the road by putting a cap on where long-term borrowing rates and mortgages will go," he says. Long-term interest rates - for funding of more than five years - have returned to somewhat normal levels. Last week the yield on the U.S. 10-year Treasury note rose to 3.9%, its highest level since early June. After the jobs numbers yesterday they closed at 3.83%. A Bank of America-Merrill Lynch report warned this week that 10-year yields above 5% could prove "destabilizing" for the markets. What could push such a move are concerns of uncontrolled government spending. "We are starting to price in supply risk and inflation risk," Mr. Pyle. "If that's not arrested any time soon, then those long-term rates will continue to rise and that becomes a risk for the equity markets, as debt-servicing costs for businesses and households go up."